The myth of a ‘Palestinian economy’

Israel has used the last 50 years of occupation to shape the Palestinian economy to suit its own interests.

Israel ensures its products have free access to the Palestinian market, while Palestinian goods have little access to Israeli markets

Though it is rumoured that US President Donald Trump may withdraw from Israeli-Palestinian peace talks after White House Senior Adviser Jared Kushner’s fruitless meetings in Jerusalem and Ramallah, certain policies touted by Trump are likely to continue regardless. For instance, Trump recently declared that he welcomed measures to “unlock the Palestinian economy“.

These measures, approved by Israel, include facilitating the travel of Palestinians between Jordan and the West Bank; zoning Israeli-occupied land in the West Bank for Palestinian residential, agricultural, and industrial use; developing two industrial zones; and expanding hours of operation at checkpoints between the West Bank and Israel to ease movement for Palestinians.

Such economic measures, at least in regard to the West Bank, are based on the assumption that a lack of Palestinian prosperity is the main cause of the conflict.The claim goes that economic success and joint economic projects between Israelis and Palestinians will improve the lives of Palestinians and pave the way for peace.

Since the 1970s, Israeli officials, as well as US and other world leaders that have led negotiations, have favoured such an “economic peace” approach.

Benjamin Netanyahu, then in opposition as leader of the Likud party, strongly advocated for it in 2008, and since then, the international community has increasingly promoted the notion that there is an economic antidote to the impasse.

But viewing economic development as the horse and a just peace as the cart only exacerbates the political deadlock, since the symptom – economic deprivation – is mistaken for the cause: Israel’s occupation and military rule.

Moreover, this approach disconnects the economy from its historical context and obscures the fact that the “Palestinian economy” is a political construct embedded in Israel’s occupation policies, which aim to expropriate Palestinian land and expand a Jewish state – while dominating the “Palestinian economy” in the process.

June 5 marked 50 years of Israeli occupation. The past five decades provide ample evidence of Israel’s use of the economy as a tool of domination over the occupied territory, in line with Israel’s political and strategic interests.

Following the occupation of the West Bank, including East Jerusalem, and the Gaza Strip in 1967, Israel sought to incorporate the occupied territories’ economy into its own, while allowing for maximum expropriation of land.

Israel controlled trade to serve its interests by, for instance, ensuring that its products had free access to the Palestinian market, while Palestinian goods had little access to the Israeli market.

The Palestinian market became a captive one for Israeli products. By 1984, Israeli products made up 89.3 percent of West Bank imports.

Israel also integrated the occupied territories’ economy into its own through labour. Between 1967 and 1990, 35-40 percent of Palestinian labourers worked in Israel.

While they contributed to the doubling of Palestinian per capita income between 1970 and 1987, this increase was accompanied by a decline in the occupied territories economy’s productivity.

By 1984, Israeli products made up nearly 90 percent of West Bank imports

While the income rose, industrial production stalled, agriculture declined, and Israel-imposed restrictions on the development of Palestinian enterprises that might compete with its own increased.

The result? Any “growth” in the occupied territories economy was skewed, as it was linked to Israeli rather than Palestinian supply and demand, and the economy only functioned by way of access to the Israeli labour market and other external sources of income.

Israeli-imposed restrictions on Palestinians’ access to natural resources exacerbated this problem, especially with Israel’s expansion of illegal settlements built on occupied Palestinian land, which violates long-standing official US policy and international law.

By 1993, the occupied territories’ economy was structurally weak, imbalanced, and heavilydependent on Israel.

The Oslo negotiations solidified Israel’s political interests and territorial ambitions and further shaped economic arrangements.

The 1994 Paris Economic Protocol systematised financial and economic relations between the Palestinian Authority and Israel. It deepened Palestinian dependency on Israeli trade as well as monetary and fiscal policies, and gave Israel control over the movement of Palestinian labour and revenue.

At the same time, it conditioned Palestinian economic development on Israel’s security and territorial requirements.

For example, the Protocol stipulated a customs union relationship between the Palestinians and the Israelis, rather than the free trade area requested by the Palestinians.This arrangement allows Israel to postpone the issue of borders, and thus sidestep the question of whether to integrate or separate from the occupied territories.

In fact, a customs union entails neither the demarcation of internal borders – and thus the establishment of a sovereign Palestinian economic and political entity – nor the total elimination of borders, enabling Israel to continue the status quo, and effectively pursue a “no-state solution“.

Palestinian acceptance of this arrangement was a precondition for the continuation of Palestinian labour flows into Israel.

The customs union has also perpetuated the unrestricted flow of Israeli goods into the Palestinian market, while severe restrictions are imposed on the movement of Palestinian goods between the occupied territories and Israel and within the occupied territories.

The Palestinian market consequently remains captive to Israeli goods. According to the United Nations Conference on Trade and Development, Israeli products accounted for more than 70 percent of Palestinian imports and absorbed more than 85 percent of Palestinian exports in 2015.

Israel’s post-Oslo attempts to redefine its territorial and economic borders with the West Bank and Gaza Strip have also affected labour arrangements.

In the occupied West Bank, Palestinians still have access to the Israeli labour market, which reflects Israel’s strategy of incorporating parts of the West Bank into Israel while avoiding a demarcation of borders.

In contrast, Israel has restricted labour flows from the Gaza Strip, which it has placed under blockade for the past decade, suggesting a move towards separation between the Israeli and Gaza economies.

Such a history demonstrates the misguided nature of the claim that “economic development” can lead to peace.

The “Palestinian economy” is a political construct, shaped to serve the more powerful player: Israel.

Any economic shifts that do not challenge the biased power structure underpinning this system serve as window dressing, obfuscating the deep-seated power differential in which Palestinians and their economy are at the mercy of Israeli interests.